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SPRINGFIELD — Illinois’ prepaid tuition program may soon be under new management.

By Melissa Leu

SPRINGFIELD — Illinois’ prepaid tuition program may soon be under new management.

A few House lawmakers are pushing to shift the College Illinois! program from the Illinois Student Assistance Commission, or ISAC, to the state Comptroller Judy Barr Topinka’s office after a series of reports revealed the program’s risky investment strategies.

ISAC is a state agency that oversees the state’s 529 prepaid tuition program. Prepaid plans allow investors to pay in advance the cost to attend an in-state public college. That money is guaranteed to increase in value at the same rate as college tuition, effectively allowing parents to lock in current tuition rates.

State Rep. Jim Durkin, R-La Grange, said he hoped to restore investors’ confidence in the system.

“College Illinois! is the worst funded prepaid college program in the country … ISAC has placed over reliance in risky alternative investment tools — hedge funds, real estate and equities,” said Durkin, who also has invested in the program.

Lawmakers were spurred to action after a Crain’s Chicago Business report uncovered that fund managers had invested 47 percent of its funds in alternative investments, such as stocks and bonds.

An audit released by Illinois Auditor General Bill Holland’s office that revealed improper management and a $338 million deficit for the ISAC program only served to fuel lawmaker discontent.

“Reasonable people can’t even disagree on this issue. That is so outside of any responsible fiduciary investment policy, that that on its surface calls for major fundamental change,” said state Rep. Chad Hays, R-Danville.

Investments made into the program are not guaranteed by the state or the Federal Deposit Insurance Corp. However, under the law, the governor must ask the Legislature to pay for any shortfalls that may have incurred that year. Investor funds deposited into the program are considered separate from state and public money.

ISAC spokesman John Samuels said investors should not be worried because ISAC certifies its financial soundness to the governor every year — and 2011 is no different.

Gov. Pat Quinn, however, is looking to mend the situation. He announced Thursday the appointment of Kym Hubbard and Miguel Del Valle to the commission.

Hubbard is treasurer and chief investment officer at Ernst & Young and will be taking over as chairwoman. Del Valle is a former state Senator and has served on the P-20 Education Council since 2009.

“Governor Quinn is closely reviewing the membership of ISAC and will continue to make changes to ensure that the commission manages investments in a safe and prudent manner,” Quinn spokesman Grant Klinzman said.

The state Senate still must confirm the two appointments before they can serve on the commission.

As of June 30, College Illinois! was 31.4 percent underfunded. In 2009, the account was underfunded by 20.2 percent.

Samuels said the threat of a comptroller takeover won’t affect the way ISAC runs the program. ISAC doesn’t plan to make any new investments until its new commissioners are in place.

“We’re just administrators of the program, and when the General Assembly created the program 12 years ago, they housed it at ISAC. The General Assembly can decide to place the program under whatever agency or department they wish. That doesn’t really affect what we do or how we look at things,” Samuels said.

Topinka spokesman Brad Hahn said she’s open to the idea, but will leave that decision up to the Legislature.

“The key thing here is that we are able to restore confidence in the program. If Judy can assist in any way, she has offered the Comptroller’s office to make that happen,” Hahn said.

But not everyone believes a management change will be the panacea to the plan’s problems.

Mark Kantrowitz, publisher of FastWeb.com and FinAid.org, a scholarship matching service and free encyclopedic guide to student aid, said he wouldn’t feel more confident in one department over the other.

“You still have this government or quasi-government entity managing it. What’s key is how it’s managed, not who is managing it,” Kantrowitz said.

The viability of prepaid tuition plans depends on the stock market and state revenue. Stock markets directly affect the fund’s ability to make a return on investment, while less state income means cuts to higher education and tuition inflation, Kantrowitz said.

State Rep. William Davis, D-East Hazel Crest, said he understands the fear investors and legislators alike have about the plan’s solvency, but he recommends that people wait out the storm before jumping ship.

“Do we just remove it without giving it an opportunity to show that fund managers and appropriate investors can turn it around? Or do we give it to the Comptroller’s office? Why should we have any confidence that the Comptroller’s office will be any better?” Davis asked.

ISAC commissioners hire professional investment managers and outside advisers to determine investments.

But even before any leadership changes, worried investors have started pulling out of the fund. ISAC admits to seeing more contract withdrawals, but is awaiting final tallies in its next audit before revealing numbers.

The House approved a resolution in April to conduct a special audit of College Illinois! to determine its financial soundness, which could come as late as next year.

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1 Comment

  1. Maybe Illinois public

    Maybe Illinois public university tuition rate increases should be pegged to College Illinois! returns, not the other way around.

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